Responsible Investment Forum with Steve Schueth

Responsible Investment Forum with Steve Schueth

A socially responsible approach to investing can kindle excitement and passions that simply do not exist in conventional investing. Numerous studies have shown that the main deterrent to successful investing is emotional attachment. It's kind of like being in love -- it's a wonderful thing, but as Plato once said, "Love is a grave mental disease." Just as rational people can behave in irrational ways when in love, the emotions that are sometimes stirred by SRI can cause otherwise rational investors to behave irrationally. Our guest columnist, Certified Financial Planner, Scott Buttfield, explains how to approach investing in a more thoughtful, disciplined manner.

Steve

Toward a More Perfect Union: SRI and Traditional Financial Planning

By Scott M. Buttfield

There is a merger in process. It's not the merger of one corporation with another, or two professional practices coming together, but rather a merger of socially responsible investing with traditional financial planning.

Early on, socially responsible investing (SRI) was viewed by some with amusement and by many in the "mainstream" financial planning community with skepticism. After all, the historic roots of SRI were with ministers and activists. But now, SRI has become a very viable and credible approach to investing. For many, the ability to own investments that are making a positive difference in the world, while offering returns that are competitive with conventional investments, is very satisfying. For some, it's a passion.

Only investing in "good" companies in clean industries and avoiding "bad" ones can sometimes produce portfolios that are wonderful from a social perspective, but less than desirable in terms of diversification. The emotional attraction to investing in alternative energy, for example, can sometimes motivate investors to put too much into a highly risky sector and result in portfolios that ultimately do not serve them very well financially. However, just like saving a bunch of money on one's car insurance, there is good news.

For investors who are serious about their financial futures, the first step is to have a written financial plan. Here's the six step structured process that Certified Financial Planners use with clients:

Establish the client-planner relationship

Gather the necessary data

Analyze and evaluate current financial status

Develop a plan for the future

Implement the plan, and

Monitor the plan

A traditional financial plan will cover cash flow, risk (insurances, cash reserves, etc.), education (saving for college), investing, taxes, retirement, and estate planning. The financial plan should be based on current financial circumstances, and it should show you the exact steps necessary to achieve your stated objectives in each of these areas. A well-designed financial plan is a comprehensive strategy to address all aspects of ones financial life, in a systematic and manageable way.

Notice that investment planning is an important component of financial planning. The overall financial plan informs and drives investment management. Financial planning is not an "add on" -- it forms the fundamental basis on which a solid investment strategy can be built.

Your investment strategy should cover such things as what types of accounts are to be established, how much should be in each of those accounts, the investment mix, what accounts should be drawn upon and when, and so on. Investing is a lot like building a house -- once we know what the financial structure will look like, we can begin picking out the materials and components to fill in the gaps. The final overlay can be to incorporate your social objectives.

There are now enough high quality SRI investment products and services available that we can satisfy the financial requirements of virtually any well constructed portfolio while reflecting the social objectives of the individual, couple, family and/or institution. When we add the benefits of professional, third party management of the investment portfolios, the likelihood of achieving the stated objectives of the financial plan increases even more.

SRI brings the excitement, passion, and potential for solid returns to the table. The financial planning process brings the organization and discipline to first establish an overall financial strategy and then formulate a solid investment strategy. Merging the two together can be a perfect marriage.

-------Scott M. Buttfield, CFP, AIF, is an investment advisory representative of First Affirmative Financial Network, LLC. He offers comprehensive financial planning and socially responsible investment management in his fee only practice based in Red Bank, N.J.

Steven J. Schueth is president and chief marketing officer of First Affirmative Financial Network, LLC. An independent investment advisory firm registered with the SEC, First Affirmative specializes in serving socially conscious individual and institutional investors nationwide. A former director and spokesperson for the Social Investment Forum, Schueth lives in Boulder, Colo.